Earnings Recap: What Happened to CrowdStrike After the Global Blue Screen Outage?

Due to losses incurred from the blue screen incident, CrowdStrike's Q1 earnings fell short of expectations. However, its annual guidance actually aligns with market projections. The stock price dropped 6.48% after hours, eliciting a strong market reaction. Nonetheless, the company's valuation is relatively high, so this decline could also be seen as a market correction.

Here’s the summary of the earnings report:

CrowdStrike reported a quarterly loss of $110.2 million, or 44 cents per share, a significant drop from the previous year's profit of $42.8 million, or 17 cents per share.

After adjustments for specific one-time items, earnings per share were 73 cents, surpassing the analyst forecast of 66 cents from FactSet.

The company's revenue increased by 20% to $1.10 billion, slightly below the expected $1.11 billion.

For the full year, CrowdStrike anticipates revenues between $4.74 billion and $4.81 billion, roughly in line with Wall Street's prediction of $4.79 billion. It expects adjusted earnings per share to range from $3.44 to $3.56, slightly above the analyst expectation of $3.46.

● The growth rate of the key ARR (Annual Recurring Revenue) metric is slowing down

In the SaaS (Software as a Service) industry, Annual Recurring Revenue (ARR) is considered one of the most important metrics, stemming from the inherent characteristics of the SaaS business model (subscription-based, long-term customer value). The subscription revenue received by a SaaS company in the current period cannot be recognized immediately but should be allocated over several future years.

CrowdStrike's ARR in FY2026 Q1 was $4.440 billion, an increase of $193.8 million from the previous quarter, which is lower than the net new ARR of $211.7 million from the same period a year earlier, indicating a slowdown in the growth of new subscriptions.

● Customer lawsuits from the blue screen outage are still pending

In the last fiscal year, CrowdStrike incurred $60 million in direct expenses due to the blue screen incident, but this was partially offset by $39 million in insurance recoveries. For Q1 2025, CrowdStrike reported a $38.7 million expenditure in general and administrative costs due to a major software outage in July. Additionally, the company incurred $537 million in research and development expenses connected to the incident.

Several clients, such as Delta Air Lines, have initiated lawsuits against the company. The total cost of these legal actions and the extent to which insurance will offset these expenses remain uncertain.

● Is CrowdStrike overvalued?

It's worth noting that the PS (Price to Sales) valuation is more significant than the PE (Price to Earnings) valuation, for reasons including:

1. Front-loaded Customer Acquisition Cost (CAC): SaaS companies like CrowdStrike invest heavily in sales and marketing expenses to acquire customers, but these costs are fully accounted for in the profit and loss of the current period, while revenues are amortized over several years.

2. High R&D investment: SaaS companies need to continuously invest in research and development to iterate their products. R&D expenses are expensed in the current period, but the value of the products is released over the long term.

Therefore, companies like CrowdStrike can temporarily ignore the PE ratio. The PS ratio (or ARR multiple) or the price-to-cash flow ratio is more appropriate. Currently, CrowdStrike's PS is 29.4 times; in comparison, Palo Alto's is 14.8 times, making CrowdStrike higher than its competitor.

● The cybersecurity sector remains a promising field

The appreciation of digital assets in the global IT industry, coupled with AI enabling more frequent and complex hacking activities, ensures that cybersecurity continues to be a burgeoning industry, with growth rates comparable to other technology stock sectors.

The high valuation of CrowdStrike implies that the company faces high financial reporting expectations, which results in significant volatility.

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